Political Economics Prof

Tag: Public Policy

  • The High Cost of Higher Education

    UPDATE. In the 15 years since I wrote this, college tuition continues to rise faster than the overall price index, admin costs continue to go up, and full-time faculty number are going down. But the most outrageous change is that as state and federal aid goes down, students are assuming much of the cost of college in the form of student loans. Many were from private colleges that were frauds; some have been closed down. Total student debt is around $1.8 trillion, more than credit card debt. About an average of $40,000 per borrower. A high percent are in arrears or default. And, unlike credit card debt, student debt does not disappear in a personal bankruptcy. Students learn a new,  scary lesson – about compound interest. 

    A report published on August 16, 2010, using the largest database of information on higher education (IPEDS), has concluded that a major reason for the rapid increase in the cost of higher education has been the increase in the number and cost of administration. The report is Jay Greene, Administrative Bloat at American Universities: The Real Reason for High Costs in Higher Education and can be accessed at goldwaterinstitute.org. Commentary on this site mentions three books and four other studies that reach similar conclusions.

    To quote from the executive summary of this report:

    But unlike almost every other growing industry, higher education has not become more efficient. Instead, universities now have more administrative employees and spend more on administration to educate each student. In short, universities are suffering from “administrative bloat,” expanding the resources devoted to administration significantly faster than spending on instruction, research and service.
    Between 1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research or service only grew by 18 percent. Inflation-adjusted spending on administration per student increased by 61 percent during the same period, while instructional spending per student rose 39 percent.

    How can colleges get away with the large, long-run increase in real (after inflation) prices? One reason is that they are part of a shared monopoly, a self-regulating shared monopoly (oxymoronic) on granting degrees. As long as most families believe their children must get a college degree, demand will be about as price inelastic as demand for drugs (both kinds). Maybe there is now more price sensitivity but – you can trade down but still have to buy it. And there is a lot less innovation and price competition than in either drug industry.

    My former college is an example of the general trends documented in this report.

    Much of the growth in administrative overhead has occurred at the top of the administrative hierarchy, combined with title inflation and higher salaries. When I retired two years ago, there were more administrators with the titles Director, Dean or Vice-President than full-time faculty members who taught more than one course per semester. I facetiously suggested we set up a one-on-one admin/faculty mentoring program so they could explain to us how to manage our departments and courses less efficiently.

    As per Parkinson’s Law, more administrators generated more administrative work for everyone else. More reports, more demands for data, more meetings, more “coordination,” more conferences. Less time for teaching, research and tutoring.

    The increase in administrators and their staff has occurred even though many support services have been outsourced. Over the past 20 years, our college outsourced the dining hall, building maintenance, the bookstore, health insurance, campus security and payroll processing.

    The large increase in administrative cost per student is surprising since most of the growth in enrollment over the last 20 years has been adult students seeking professional degrees. Adult students need far less administrative and support services than full-time day students. The increased adult enrollment has been matched by an increase in adjuncts; the number of full-time professors is almost the same as 20 years ago.

    Almost none of the increase in administrative overhead benefits adult students, who now account for close to half of all college students. The marginal cost of an adult student is very low – the cost of an adjunct spread over the average number of students in a course (about $150/student). Adult students and their employers pay more per course than day students because most do not receive tuition discounts and have little access to “scholarships.” The increasing numbers of adult students are subsidizing day students (and their non-academic activities) and covering the rising administrative costs of the college.

    No sane person would pay $3,000 for a course taught by a graduate student or a mediocre professor when better and cheaper alternatives exist, such as the wonderful lecture series of the Teaching Company (less than $100/course), are available. Even my local lifetime learning courses ($65/course) are at least as good as the average college course. The current thinking and reading for most courses are free at my county library network or on the Internet. But they can’t offer college credits or degrees.

    So the difference between the $100 charged by the Teaching Company and the tuition per course charged by a college is a monopoly profit. This may be an overstatement. Colleges offer a variety of additional services – exercise rooms, pools, sports, psychological counseling, free access to the Internet, cultural activities and social activities. But most colleges add on a variety of student fees in addition to tuition to pay for part of the cost of these activities.

    Our college, like almost all colleges, uses an average cost-plus pricing mechanism, with the same disincentives as military cost-plus contracts. This works as long as most of the money comes from third parties with growing revenue or from subsidized borrowing. It will be interesting to see what changes occur in colleges when state aid and third party reimbursement is cut. Will colleges buy out tenured faculty? Fire untenured full-time faculty and replace them with adjuncts or graduate students? Cut library budgets? Defer investment in lab equipment and building maintenance? Cut the number of administrative positions?

    Almost no one would object that tax money should be used to further the goal of equal opportunity to receive a college education. Like health care, tax dollars have been a major source of the tremendous growth in revenue. But there is no accountability. College administrators have economized on the cost of teaching and spent the money on administration. No surprise that GRE scores have been going down.

    As a first step, a simple metric might help. All third party payers – the federal government, state government, public and private employers – should start to cut back on tuition reimbursement to a college unless education expenses (teaching, labs, library) rise faster than administrative expenses. Maybe, just maybe, the ratio of professors, researchers and tutors to administrators and their staffs might go up. Maybe, just maybe, colleges will remember that their mission is to provide quality education rather than create more and more highly-paid administrative positions.

  • Who Do You Fear More, Big Business or Big Government?

    OK, who do you fear more, big government or big business?  

    Historically, Americans saw a relatively small government with regulatory powers as a check on monopoly and big business.  But the rise of big government because of the Great Depression, World War II, the Cold War, and the Great Society changed that.  Americans had a choice.  There was a general consensus that we had to spend a lot of money for national and international security during the Cold War.  But the expansion of the social welfare state and environmental regulations changed attitudes towards the federal government.  The two largest programs of the social welfare state, Social Security and Medicare, have been financed by very large tax increases. These tax increases are somewhat offset by federal income tax cuts.  

    Since the 1980s, there has been a well-financed campaign to roll back the regulation of big business, especially the finance sector. This campaign has been successful.  Most populist outrage, despite the financial system causing a recession, structural unemployment and large federal budget deficits, is now directed at government, as opposed to big business in the past. Attention is focused on the effects, not the underlying causes, which are still there. 

    Limiting government social welfare programs has somehow been tied to even less regulation and oversight of big business.  How did this happen?  

    One reason is that much of the financing of the Tea Party movement and organizations like ALEC come from big businesses and the very wealthy owners and managers who control them. Many of them share the Tea Party and Christian right outrage over lack of government regulation and prohibition of personal behavior they find morally reprehensible.  Somehow, a generalized anger and rage over government protection and even support of this behavior has been channeled to limiting government regulation of business, including rollback of environmental legislation and regulation.

    The logical Republican candidate for president, representing this generalized fear directed as loathing of government, is Donald Trump.

    The American political nightmare in the past has been that big business and big government become partners rather than adversaries. There are exceptions. We accepted it in the areas of defense technology and infrastructure spending. We denounced it if it led to regulatory capture or was a barrier to technological progress. We were angry if we believed that the rich were using government to transfer income from the middle class to themselves.  We seem to have lost this outrage.

    In addition, this cooperation has been raised to new levels with the need for huge sums of money to get elected and virtually no limits or accountability because of the recent Supreme Court decision allowing super PACs. They channel large sums of money to support candidates who tap into widespread fear and anger about American society and government.  These elected officials are also pro-business (reduce taxes on the rich and corporations, less environmental regulation, no anti-trust, no oversight of financial companies) or at least anti-government, which amounts to the same economic policies.

    It really isn’t a question of “getting government out of people’s lives.”  Social conservatives want more government interference in individuals’ lives. It seems to be a question of big business not paying the social costs of a capitalist economic system. It’s a question of getting government out of big businesses’ lives. Regulatory capture has become total government capture.

    The stagnation of middle class incomes and rising income inequality, the threat of widespread unemployment because of automation and AI, and the huge rise in temps and “consultants” without any benefits don’t seem to be major political issues. Why? Who makes the decisions that result in all this? Who outsources jobs to China and threaten American workers with more outsourcing, keeping wages down? Who eliminates pensions and other fringe benefits? Who wiped out home equity for ten million homeowners? Who is buying record numbers of robots to replace workers? Large corporations, most of which are multinational companies. The result? Record profits and bonuses even in a period of slow economic growth. This is a major reason for the redistribution of income from the middle class to the rich. No wonder the rich are willing to spend a great deal of money to protect this trend from possible government interference.

    And deflect blame. President Trump reflects the belief that America’s economic and employment problems are due to illegal Mexican immigrants and “China.” “China” doesn’t export to the United States; multinational corporations and Chinese companies do. About 60% of imports from China come from American and foreign multinationals. Much of the exports of Chinese companies are part of the global supply chain of American companies.

    Perversely, the debate seems to be centered on conservative attacks on the increased cost of programs like unemployment benefits, disability benefits, Medicaid and Obamacare, nutrition aid for poor mothers and infants, and food stamps.  Programs for the poor, sick and unemployed.  Major reductions in social welfare and social safety net programs are at the heart of Republican budget proposals. These cuts are necessary to keep the Bush and Trump tax cuts for upper-income families and corporations without increasing the yearly deficits.   

    The only realistic way smaller deficits will happen, let alone a balanced budget, is a combination of strong economic growth – creating strong growth in tax revenue – and tax increases, mostly disguised as eliminating deductions and subsidies.

    The Republican rhetoric about smaller deficits is ideological cover for slashing social welfare and other programs that conservatives oppose. 

    For the first time in American history, populist anger is aimed at government, not big business.  The federal government is seen as supporting programs and groups that are anathema to conservatives. Big business has supported this attitude in return for support for pro-business policies. You could call this ideological capture.

    The situation is made worse by a zero-sum mentality. In a world of low growth and increased fear and insecurity, there is less room for compromise. There is widespread middle class perception that minority groups and the poor are getting unfair amounts of social welfare benefits that come out of middle class taxes. This is ironic since the two largest social welfare programs are Social Security and Medicare, which overwhelmingly benefit the middle class, and the lower half of the middle class do not pay any income tax. And, sadly, we seem to be losing any sense of shared community or compassion for others. 

    We are seeing government in a period of disruptivd social and economic change.  Over the last 50 years, we have become a more tolerant, open and inclusive society. One result of this is behavior and culture that many people, not just conservatives, find distasteful or immoral. Combining this moral outrage with economic insecurity and a fear of the loss of power and status, is a potent political combination. The irony is that conservatives want to use the coercive powers of government to limit or outlaw some of these consequences. 

  • American Foreign Policy Since 1991

    American Foreign Policy Since 1991



    Introduction



    The United States
    has been the world’s only superpower since the collapse of the Soviet
    Union in 1991.  In some ways
    it is more difficult to manage foreign policy without concentrating on one big
    rival.



    The United States
    is vastly stronger in military strength than any possible coalition of enemy
    forces.  But since 9/11 we are feeling
    less secure despite huge military and domestic security expenditures.  Our military and national security
    expenditures of around $1.1 trillion are greater than the military expenditures
    of next ten countries combined (and most are allies).  This is a consequence of a professional
    military, a result of eliminating conscription after the Vietnam War, and the
    highly technical (capital intensive) nature of American military forces and strategy. 



    There is almost no national debate on U.S.
    military interventions in other countries. 
    One reason is that most Americans have no direct involvement; they see
    the professional military differently than if we still had the draft and a conscript army.



    There has been little public debate on national security
    strategy since 1991.  Congress has all
    but abdicated its role in foreign policy to the president. We should be asking:



    Is it the wrong strategy for a rapidly changing world?


    Do we rely on military force at the expense of using other
    means? 


    Did America
    change its political and military strategy enough after disintegration of Soviet
    Union? 


    We focused on terrorism after 9/11.  But are we fighting global terrorism with the
    same strategy we used during the Cold War? 



    There have been a number of successes from the U.S.
    point of view.  But they are not directly
    due to America’s
    military might or even an active American foreign policy.



    Eastern European countries join
    NATO and the European Union after the collapse of the Soviet empire.  This is a historical moment – a chance to
    peacefully unite Western and Central Europe.



    The spread of democracy to
    countries without a democratic tradition or experience, especially in Latin
    America and East Asia.  In some cases, democratic groups were able to
    overthrow authoritarian or military regimes that enjoyed American support.



    The shift in control of most economic
    resources from public to private control. 
    Except for some raw materials, almost all of global economic resources are
    now in private hands, especially those of large multinational corporations.  Private companies develop new technology.  A globally integrated economy, I would argue,
    is in America’s
    national interests.




    I would like to discuss four aspects of American foreign
    policy:



    Reliance on massive firepower and technological solutions.


    Lack of knowledgeable leadership in the United
    States.


    Lack of support for democratic, liberal groups in
    authoritarian states.


    Lack of awareness that domestic and foreign policies are
    intertwined.



    Reliance on massive
    firepower and technological solutions.



    It is difficult for American leaders not to think first of a
    military solution to a foreign political problem when we have such a
    magnificent tool as the U.S.
    military. But military interventions have not been politically successful in Vietnam, Lebanon, Somalia, Afghanistan or Iraq.  American presidents have
    learned that it is easy to invade and conquer but hard to occupy.  Also, as in Iraq
    and Afghanistan,
    lengthy occupations tend to create and strengthen the very political groups we
    seek to destroy. The Taliban is the strongest political group in Afghanistan; the inept occupation of Iraq led to Iran now dominating Iraqi politics and officers of the disbanded Iraqi army joining ISIS.   



    The use of military force without thinking through the
    long-run consequences and how it fits into 


    America’s
    strategic objectives can be futile and expensive.


    Lack of awareness that
    domestic and foreign policies are intertwined.



    For a superpower there is no distinction between domestic
    and foreign policy. Since 9/11, the United States has become a domestic security state; new surveillance powers and technology threaten civil liberties and individual rights to privacy. 

    Domestic economic and social policies have
    consequences for foreign policy and American power.  A few examples:


    Fiscal Policy. 
    After eliminating the self-funding parts of Social Security and
    Medicare, about 40% of the federal budget is currently financed through
    borrowing.  The current deficit is about
    $1 trillion a year.  This is
    approximately equal to total national security costs.  So the high costs of being a superpower is
    being financed through debt. Higher tax revenue because of economic growth will reduce but not eliminate the yearly
    deficit and increase the national debt. The recent combination of a tax cut and increased military spending makes the fiscal situation worse. At some point, American leaders may have to look at the cost of
    national defense and seriously consider major cutbacks.  This will impact America’s
    ability to project force and influence anywhere in the world.



    If large fiscal deficits continue they will eventually
    jeopardize the dollar as the international currency.  Much of international trade is denominated in
    dollars.  This is a source of America’s
    global influence.


    Energy policy. 
    Importing crude oil and natural gas finances, directly and indirectly, America’s
    actual and potential enemies.  In the
    past, oil exports supported corrupt, authoritarian regimes in Libya
    and Iraq.  Oil exports benefit Russia,
    Iran and Venezuela.  Oil revenues help finance Muslim terrorist
    groups. Because of the dramatic increase in domestic production of oil, the U.S. now imports virtual no oil from the Middle East. It is ironic that the United States became militarily engaged in the Middle East just as we no longer needed oil from that region.


    Trade Deficit. 
    The U.S.
    continues to run a large trade and current account deficit.  The reasons are complicated although net
    energy imports are a part of it. 
    We can run this trade deficit as long as foreign holders of dollars are
    willing to invest in and lend to the United
    States. In the long run, this could have
    serious economic consequences.  Changes
    in domestic energy and economic policies could reduce the trade deficit and
    finance more of it from domestic savings. 
      


    Drug policy.  Current
    domestic drug policy creates huge profits for drug gangs around the world.  Profits from the drug trade help to finance
    terrorist groups and the states that support them.  Drug gangs destabilize Latin American and
    Asian governments and divert resources needed for economic development.



    An important part of American influence in the world is foreign
    perception of America
    as an example to be emulated.  America
    represents both a set of political and social ideals, and a related model to
    achieve economic growth and opportunity.  American influence is jeopardized if the rest
    of the world sees a society with increasing concentration of wealth and income,
    less social mobility, low economic growth, and a political system that appears
    to be intolerant, lacks compassion for the poor, and seems incapable of solving
    domestic problems.



    Lack of support for
    democratic, liberal groups in authoritarian states.



    The United States
    continued to support authoritarian regimes even after the fall of the Soviet
    Union.  There was no
    long-run policy to support democratic groups in authoritarian states after 1991
    or even after 2001.  Potential democratic
    opposition in these states continued to be outlawed, weakened or
    destroyed.  In many countries, the only
    organized opposition was religious fundamentalist groups. Egypt
    is the latest example.



    The United States
    should concentrate on supporting organizations and individuals who organize and
    expand the civil society of countries. 
    The point is that a democratic state can only survive and prosper if it
    has a social, economic and ideological foundation.



    The U.S.
    should support democratic groups in the same way we supported Solidarity in Poland.
    The American people have a role to play by contributing to NGOs that can affect
    change through supporting and advising civic organizations in other countries.



    One area of opportunity where the U.S.
    and Americans should support democratic groups and civil organizations is sub-Saharan
    Africa. This is important since after 2050 all of the world’s population growth will occur in sub-Saharan Africa.



    Part of any strategy is to play for the long run.  It was naïve to expect that Russia
    would overnight transform from a Communist to an American-style democratic
    society, or that long term Russian strategic interests would somehow disappear.  It is possible that Islamic
    fundamentalist political parties will dominate politics in many Islamic states
    in the foreseeable future.  But, as in Iran,
    they will create an internal opposition. 
    They can not keep out information, ideas and images from other
    societies.  For the U.S.,
    giving the opposition moral and material support should be a vital part of a
    long-run strategy.



    Lack of knowledgeable
    leadership in the     United States.



    The quality of leadership counts.  For a superpower, the ignorance and lack of
    foreign policy experience of every president and presidential candidate after George
    Bush is appalling.  It is ironic that
    almost all of the domestic and foreign policies of George Bush were reversed or
    ignored by his son when he became president.  



    The American people should think about electing national
    leaders who know something about the rest of the world.  The recent presidential debates were
    embarrassing.  Congressional leaders are
    even worse. 


    Questions



    What are America’s
    strategic objectives?


    How are they being met by using overwhelming military force?


    What are
    the limits to our military superiority in a world of “asymmetric warfare,” non-state terrorist groups, and Internet-based propaganda?

                What are
    the tactical alternatives?



    Can we continue to spend $1 trillion a year on national
    security while running large budget and trade deficits?



    Cautionary Tales



    Historical
    analogies must be used with extreme care but they can be suggestive cautionary examples.  I wish that America’s
    political leaders had read Thucydides, especially his detailed analysis of Athens’
    large expedition to subdue Syracuse,
    before committing substantial American military forces to Vietnam. Or how come the most powerful military country of its day could not defeat American rebels. 



    The examples of the imperial democracy of Athens
    and the Roman republic might be relevant to the U.S.
    after the collapse of the Soviet empire. After defeating serious threats from rival powers (Persia
    and Carthage, respectively), both
    city-states rapidly expanded power and influence.  Both became the dominant powers in their main theaters of operation (Greece for Athens and the Mediterranean for Rome). Athenian and Roman political institutions could not adjust to remaining democratic and managing an empire.  Thucydides gives Pericles,
    the architect of imperial Athens, a
    speech justifying Athens’ foreign
    policies that sounds eerily like the “American exceptionalism” speeches of the
    last 20 years. In both cases, foreign power and imperial policies put severe strains on
    domestic politics and society. Athenian democracy was destroyed by a war of attrition with Sparta and then both were conquered first by the Macedonians and then the Romans. The Roman republic expanded rapidly in the last 100 years of the republic but collapsed from internal pressure to become the Roman empire.



    Conclusion



    All of this suggests that there are less expensive
    alternatives than relying primarily on military superiority – U.S.
    image, different domestic policies, changing security and economic alliances, support for foreign civil society
    organizations, becoming more economically
    competitive in the global economy, strategic vision and better leadership.  Since it is possible that military and national
    security spending will decrease sometime in the future because of fiscal constraints, it is time to
    concentrate on alternatives.


  • Putting a Price on Professors


    Over this weekend (October 23-24), The Wall Street Journal had an article entitled “Putting a Price on Professors,” which you can read at

    http://online.wsj.com/article/SB10001424052748703735804575536322093520994.html

    As a reader of murder mysteries and a fan of the Sopranos, the title scared the hell out of me. After I calmed down, I realize they were talking about something more like economics (a non-violent major) – attempts at cost/benefit analysis.

    The main idea is that some states, especially Texas, are trying to determine which college professors, majors and programs make money and which lose money. The accounting methodology is a very primitive version of profit and loss statements, focusing primarily on salary costs. Excluded are revenue from grants and the cost of capital equipment, which makes analysis of the sciences particularly worthless. But at least it’s a crude attempt at accountability, in a financial sense, which is understandable since taxpayers pay for most of undergraduate education. States spend about $80 billion a year on their colleges.

    Texas wasted its taxpayers’ money hiring a conservative think tank to do this analysis. It has already been done and the results are freely available. All they had to do was look at the majors and programs of the for-profit colleges. In general, the most profitable programs are professional degree programs aimed at adult students who pay full tuition. As far as I know, there are no science and engineering for-profit colleges.

    In the examples given, low tech majors like History and English made money. Science and Engineering programs lost money, except for the example of chemistry. Chemistry may have shown a profit because of lots of big intro courses (everyone wants to be a doctor when they go to college) and lab equipment costs were excluded. The article also seems to imply by example that big lecture hall courses with lots of students (low cost per student) make money while specialized upper-division courses with small classes (high cost per student) lose money. Gee, what a surprise.

    One of the reasons for the study is the soaring costs of tuition (scary graph for parents included in the article). What’s not said is that this is the “retail” price; out-of-pocket expenses by students and their kind, wonderful parents have gone up much less. But since Texas and federal taxpayers are footing the bill for much of the increase, it is understandable they are concerned about the lack of “productivity.” Any Econ 101 student could have told them that one of the main reasons for the big increases in tuition is the State of Texas. As long as taxpayers and their elective representatives are willing to foot the bill, why shouldn’t colleges (administrators and full-time faculty) try to maximize their income? There’s a reason why more college presidents have an academic background in economics than any other major.

    What’s missing from this is the topic of a prior post on the causes of increasing college costs. Administration costs have gone up much faster than teaching costs.

    But, to be fair, colleges have made an attempt to contain costs. Full-time professors are expensive and colleges have tried to “economize” on this cost. To quote from the article:

    More instruction is handled by part-time lecturers, who now make up at least 50% of the nation’s higher-education faculty – up from 30% in 1975.

    In large universities, much of the “instruction” is actually performed by graduate students.

    Which brings us to the related issue of the quality of a college education. Statistics in this article and from other studies indicate a decline in general skills such as literacy, writing and critical thinking. What surprised me was the low graduation rates. According to the article, “just over half of all freshmen entering four-year public colleges will earn a degree from that institution within six years.” I hope they excluded students who transferred. But how can this be? With grade inflation, it is virtually impossible to flunk out. One reason, among many including financial, is that many large universities like Rutgers have cut back on the courses and sections they offer (“economizing” again), which has increased the average time it takes to graduate. And, in Rutgers case, two of the six years are spent trying to find a place to park.

    Some states are putting student evaluations of professors online. That should increase the quality of education. Every prof knows the way to get good student evaluations, which are often considered when the prof is up for tenure, is to teach an easy course and give lots of high grades. Students, being rational, do the minimal amount of work to achieve their target grade. And they know that administrators are more concerned with revenue and keeping their jobs than the quality of education. I lost two adjunct teaching jobs because I had the audacity to give some students “D”s.

    The article is long and contains a lot more material and controversy than I covered. I hope you read the article and I would be interested in your comments.

    _____________________________________________________________________________

    Related Posts:

    The Costs of Athletic Scholarships

    How to Pay for College

    How to Succeed in College

    The High Cost of Higher Education